Try These Tips for Advising a Client Forced Into Early Retirement

Retiring early is a dream for millions of Americans looking to drop the briefcase and pick up the golf clubs – for good.

But that dream can become a nightmare for career professionals who lose their jobs in their late 50s or 60s, and can’t find a new one with a comparable salary, thus leading to an early career exit.

Such “forced” retirements have become more commonplace in the years following the Great Recession, and financial advisors have to navigate both the emotional and financial fallout, and re-adjust that client’s retirement plan on the fly.

Studies do show the difficulties presented when older workers lose their jobs.

According to a recent report by The Urban Institute, while older workers are less likely to be laid off than their younger counterparts, “those who lose their jobs take substantially longer to become re-employed.”

The study stated that workers age 50 to 61 who lost their jobs between mid-2008 and the end of 2009 “were a third less likely than those age 25 to 34 to find work within 12 months, and those age 62 or older were only half as likely.”

Tough to Find Work

The likelihood of finding a job within a year was only 36 percent at age 25 to 34, 24 percent at age 50 to 61, and 18 percent at age 62 and older, the Urban Institute reports.

Difficulty in finding a new job often leads to a forced, early retirement.

“Data from The Employee Benefit Research Institute says that about 50 percent of retirees are forced to retire earlier than planned,” said Frederick Saide, managing director at MoneyMattersUSA Advisory in Scotch Plains, N.J. “And only about 25 percent retire early because than can afford to do so.”

Individuals who are forced to contemplate an early retirement, on a “ready-or-not” basis, should examine all options, and rule nothing out, experts say.

“Getting fired is traumatic, but like any setback one can view it as an opportunity to reshape oneself and one's future or to seek an opportunity that extended one's present career,” said Mitchell Langbert, a human resource management professor at the Brooklyn College Koppelman School of Business, a branch of the City University of New York. “Hopefully, if the person is in his or her fifties, they have enough savings to spend some time reassessing their future.”

Retirement would surely be a part of that reflection, and that’s where some good, objective professional financial advice would come in handy.

“A forced retirement challenges people in two ways,” Saide said. “The obvious challenge is financial; the less obvious challenge is mental,” he noted. “Both tests may be met with sufficient foresight and dedication.”

Take These Steps

Take stock of your financial situation. If you have a pension you may be able to collect at age 62, Saide said.

“It’s the same for Social Security,” he said. “If you’re married, claiming your retirement income benefit from Social Security is a poor idea because it leaves the surviving spouse with a reduced income. Determining a strategy is essential, unless Social Security’s merely icing on the cake.”

Stress test your retirement portfolio. The early retiree’s 401(k) needs to be stress tested along with his or her entire retirement income strategy.

“Assume you and your spouse will live 25, 30, even 40 years into retirement,” Saide said. “Will your nest egg last as long you do? Portfolio stress testing will help you see what your probability of success is in different portfolio selections as well as allocations. What changes needed to be made on an ongoing basis?

Set a budget. “Decide on the amount of money you’ll need and set up a budget and see if you can live on it, Saide added. “Don’t forget to include all of your expenses including federal income tax and local property tax.”

Make moving an option. “Decide if you want to remain in your current home or apartment or relocate to areas with a lower cost of living,” Saide said.

Take the cost of health care into account. Don’t examine merely the cost of insurance, Saide advised. Include the cost of medical care not covered by Medicare, too.

“Take long-term care expenses into consideration,” he said. “Both medical and long-term care expenses must be built into capital expenses. The latest research tells us at age 64, there is a 50 percent chance that one spouse will require long-term care expenses and a 75 percent chance that one spouse will eventually be in an institutional setting.”

Getting creative can also set an early retiree onto a solid financial path going forward, especially if they’re being pushed into retirement.

"It’s often helpful to withdraw a portion of retirement savings to live on for a year, and place a portion into a personal pension with a growing guaranteed income rider attached,” said William Stack, owner of St. Louis-based Stack Financial Services. “This will take some of the immediate financial pressure off, while you look for other opportunities, and insure that your future income is also growing while you look."

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at [email protected]